Investors concern for Nigeria’s debt market eases as oil prices rebound

June 8, 2020
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The outlook for investors in the country’s debt market appears very bright following the rebound in the prices of crude to its highest level in almost 3 months at over $42 per barrel after the output cut by OPEC and other top oil-producing countries helped to reduce the supply glut in the market.

With oil exports contributing about 90% of the country’s foreign exchange earnings, this will boost government revenue and improve liquidity in the foreign exchange market. If the current trend in the global oil market continues, it will provide some level of stability to the country’s already fragile economy.

According to a report from Bloomberg, Mahmoud Harb, a director at Fitch Ratings said, “If oil prices stabilize close to the current levels until the end of the year, it would add modest upside risks to forecasts for economic growth, public finances and international reserves.”

“A 10 per cent rise in the full year’s average crude price above the company’s current forecast of 35% per barrel would improve Nigeria’s current account deficit by 1.5% of gross domestic product,” he said.

The outlook for investors in the country’s debt market appears very bright, as the yields on Nigerian bonds maturing in 2047 fell from an all-time high of 13.2 per cent on March 19 to 8.6 per cent on Friday.

The shows that the cost of raising new debt for Nigeria will be relatively lower now if the country chooses to go to the international bond market, although it has ruled out doing so this year.

The Central Bank of Nigeria (CBN) Governor, Godwin Emefiele had predicted that the country might not get into recession as a result of the coronavirus outbreak. The CBN said last week that the drop in GDP could be less than the 3.4% projected by IMF.

The disruptions in economic activities have negatively affected the Nigerian consumers.

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